Mr. Dale Andres reports

GATOS SILVER PROVIDES UPDATED CERRO LOS GATOS MINERAL RESERVE, MINERAL RESOURCE, AND LIFE OF MINE PLAN

Gatos Silver Inc. today released an updated mineral reserve estimate (the 2023 mineral reserve), mineral resource estimate (the 2023 mineral resource) and life-of-mine (LOM) plan (together with the 2023 mineral reserve and 2023 mineral resource, the 2023 updates) for the Cerro Los Gatos (CLG) mine, with an effective date of July 1, 2023. The company will host an investor and analyst call on Sept. 7, 2023, details of which are provided in this news release.

The company has a 70-per-cent interest in the Los Gatos joint venture (LGJV), which in turn owns the CLG mine in Mexico. All dollar amounts are expressed in U.S. dollars unless otherwise noted.

Dale Andres, chief executive officer of Gatos Silver, said: "We have achieved significant life extension objectives with this updated mineral reserve estimate, exceeding our target of adding one to two years. The new life-of-mine plan, which is based on recent operating performance, demonstrates our continued confidence in CLG's ability to deliver robust margins and consistent cash flow. Gatos Silver has a strong balance sheet and remains debt free, with regular cash distributions to the joint venture partners expected throughout CLG's mine life. We continue to believe there remains substantial additional value at CLG, and we are now analyzing a number of projects with the potential to further improve margins and mine life as we move forward. In the near term, the LGJV is continuing to define the southeast Deeps area and ramp up exploration efforts in the Los Gatos district with the mobilization of a seventh surface drill rig this month."

Summary:

• Robust CLG 2023 LOM plan with strong and consistent annual cash flow profile (100-per-cent basis):
  • Mine life extended from early 2028 through to the end of 2030, an addition of 2.75 years;
  • Average annual after-tax free cash flow (1) of $75-million, resulting in an after-tax net present value (NPV) (2) of $462-million, an increase of $123-million from the 2022 LOM from July 1, 2023, onward;
  • Sustaining capital costs of $160-million, a $93-million increase from the 2022 LOM to support the longer mine life, including additional underground mine development and tailings storage capacity;
  • Attractive byproduct all-in sustaining costs (AISC) (1) (3) of $7.703 per ounce of payable silver;
  • Total silver production over the remaining mine life expected to increase by 46 per cent and total silver equivalent production (4) expected to increase by 50 per cent;
  • Average annual production of 7.7 million ounces of silver expected during the 2024 to 2026 period;
  • Average annual production over the LOM of 6.6 million ounces of silver, 65 million pounds of zinc and 47 million pounds of lead, or 12.4 million ounces of silver equivalent (4) production;
• Additional drilling has delivered a significant increase to the 2023 mineral reserve:
  • 2023 mineral reserve of 8.1 million tonnes at 217 grams per tonne (g/t) silver, 4.32 per cent zinc, 2.20 per cent lead, 0.25 g/t gold and 0.15 per cent copper, with 56.3 million ounces of contained silver;
  • 61,520 additional metres of diamond drilling used in the block model estimation, including 284 underground holes and 51 surface holes, an increase of 28 per cent;
  • 1.8 million tonnes of the 2023 mineral reserve increase is in the southeast zone, inclusive of 328,000 tonnes below the 1,100-metre elevation level in the southeast Deeps area;
• Southeast Deeps discovery in 2022 has resulted in a significant increase to the 2023 mineral resource:
  • As first announced in October, 2022, a deeper zone of mineralization, southeast Deeps, was discovered extending up to 415 metres below the 2022 mineral reserve;
  • The first stage of drilling completed on the southeast Deeps zone (up until March 31, 2023) has resulted in an inferred resource estimate for CLG of 4.6 million tonnes at 100 g/t silver, 3.40 per cent zinc, 2.32 per cent lead, 0.21 g/t gold and 0.40 per cent copper;
  • 2023 mineral resource includes 400,000 tonnes of measured and indicated resource at 93 g/t silver, 3.55 per cent zinc, 1.88 per cent lead, 0.25 g/t gold and 0.14 per cent copper;
• Substantial opportunities remain to increase mine life and further improve margins at CLG:
  • As previously announced, the infill drilling and exploration budget for 2023 was increased by $3-million to $16-million with a seventh surface drill rig being mobilized this month;
  • Current drilling is focused on converting the higher-grade portions of the inferred resource in the southeast Deeps zone to measured and indicated resources, with a target of adding three to four years of mine life over the next 12 months;
  • Increased drilling of near-mine and district exploration targets planned during Q4 2023 and 2024;
  • Capital efficient modifications to the existing plant are being evaluated in conjunction with further mine life extension efforts, including: a pyrite leach circuit to increase silver and gold recovery; and a copper separation circuit to produce copper concentrate and potential mill throughput growth of up to 4,000 tonnes per day (tpd).

(1) Non-GAAP (generally accepted accounting principles) financial measures.

(2) NPV is as of July 1, 2023, using a discount rate of 5 per cent. NPV and free cash flow assume base case prices of $22 per ounce (oz) silver, $1.20 per pound (lb) zinc, 90 cents per lb lead, $1,700 per oz gold and $3.50 per lb copper, and a Mexican peso exchange rate of 20 Mexican pesos per $1 (U.S.).

(3) Includes LGJV management fee and administrative costs.

(4) Silver equivalent production is calculated using base case price assumptions to convert zinc, lead and gold production contained in concentrate to equivalent silver ounces (contained metal, multiplied by price, divided by silver price). Copper is excluded due to relatively low payable terms for copper in lead concentrate.

2023 CLG LOM plan update summary

An attached table presents a comparison of key metrics of the 2023 LOM plan with the 2022 LOM plan considering the comparable periods from July 1, 2023, onward (the effective date of the 2023 LOM plan).

Total silver production in the 2023 LOM plan has increased by 46 per cent compared with the 2022 LOM plan, with slightly higher average mill throughput of 2,949 tpd and similar unit operating costs. Silver production averages 6.6 million ounces per year over the mine life and averages 7.7 million ounces during the 2024-to-2026 period.

2023 CLG mineral reserve and mineral resource tables

The 2023 mineral reserve for CLG by reserve category is summarized in an attached table and the CLG 2023 mineral resource reported by category is summarized in another table.

Diamond drilling

The increases in mineral reserve and mineral resource are primarily driven by a large amount of diamond drilling completed between the 2022 and 2023 updates. The 2023 mineral resource update for CLG used a total of 1,466 diamond drill holes totalling 282,905 metres. Compared with the 2022 mineral resource estimate, this represents a 28-per-cent increase from the database used for the 2022 update with an additional 32,057 metres of surface resource drilling from 51 holes and 29,462 metres of underground definition drilling from 284 holes. The data cut-off date used for the 2023 updates was the end of March, 2023.

Various additional control measures are now in place that further strengthen the CLG drilling data collection process, including a new secure database system, additional quality assurance and quality control measures, and periodic reporting, gyro downhole surveying for surface drill holes, and increased diameter of the diamond core of the two smaller underground drill rigs from 35 millimetres (mm) to 42 mm.

Mineral resource estimation

The 2023 mineral resource uses an estimation methodology that is similar to the methodology used for the 2022 mineral resource estimate. Geological interpretation of 3-D domain solids was completed using all available information, including detailed underground mapping, channel sampling, and surface and underground diamond drilling. The block model estimation uses assay information from diamond drill core only. The model interpolation is by multiple-pass ordinary kriging using locally varying anisotropy to follow the changes in dip and azimuth of the veins. Control of outlier grades is by high-grade distance restriction. The limits set for these restrictions are based on statistical analysis and comparison of mined areas to actual production. CLG mineral resources are reported exclusive of mineral reserves and within stope shapes to define reasonable prospects of economic extraction.

Changes since 2022 include the reduction in the subblock size from 2.5 metres (m) to 1.25 m to better represent the vein solids and the addition of a fourth estimation pass with longer ranges that is used for estimation of inferred resource only.

2023 mine design and scheduling

The methodology used to prepare the 2023 mine design is similar to the methodology that was implemented for the 2022 updates, only updated to account for changes in actual operating performance over the last 12 months.

Long-hole (LH) mining methods were applied where amenable throughout the mine, which represents approximately 74 per cent of total LOM stope production. This compares with 56-per-cent LH tonnage in the 2022 mine design. Stope production in the mine plan transitions from approximately 50-per-cent LH in 2024 to 95-per cent LH toward the end of the mine life. The increase in LH mining is a result of increased reserves coming from LH in the central and southeast zones. The operation has successfully been mining steeper sections of the central zone using LH mining methods. In addition, transverse LH mining is being used in certain areas in the central zone that are dipping less than 55 degrees but where the width of mineralization is greater than eight m. The mine design has been modified to reflect these operational changes. The majority of the southeast zone, where the largest reserve increase from drilling has occurred, also has a steeply dipping geometry suitable for LH mining. Other areas that are dipping less than 55 degrees are still planned to be extracted using cut-and-fill (C&F) methods.

Mineral reserve LH stopes are planned to be filled using primarily paste fill, with cemented rock fill or uncemented rock fill also considered in both the LH and C&F areas. The paste fill plant commenced operations at the end of 2022 and is performing in line with design specifications.

Mine dilution and mine recovery estimates are based on recent actual operating performance. These assumptions are applied based on the mining method, stope width, zone inclination and proximity to hangingwall faults.

Operating and sustaining capital cost assumptions are based on recent actual costs with minor specific allowances for business improvement initiatives that are defined and being implemented. Mine operating costs were developed separately for LH and C&F mining methods.

2023 LOM production plan

The 2023 LOM plan is based on an average processing rate of 2,949 tonnes per day, resulting in a mine plan that exhausts current mineral reserves at the end of 2030. LOM mining rates are similar to current operating rates and underground development for mining the current mineral reserve is expected to be materially complete in 2027.

Mineral processing at the current operation uses conventional sulphide flotation, producing separate lead and zinc concentrates. Predicted metallurgical recoveries over the 2023 LOM plan average 88.2 per cent, 62.8 per cent, 89.4 per cent, 54.2 per cent and 60.0 per cent for silver, zinc, lead, gold and copper, respectively. The recoveries were estimated based on recent actual plant performance. A total of 49.7 million ounces of silver, 484 million pounds of zinc, 351 million pounds of lead, 34.7 thousand ounces of gold and 11.8 million pounds of copper are estimated to be produced according to the 2023 LOM plan.

CLG's short-term definition drilling and short-term mine plan updates required for execution may cause actual annual operating results to differ significantly from the 2023 LOM plan schedule shown in an attached table. Gatos Silver provides annual production guidance and quarterly production results for CLG, and such results can vary quarter over quarter based on short-term execution plans and constraints. Annual guidance for 2024 is expected to be announced in early 2024 after detailed planning and budgeting for the year are complete. The company cautions investors that guidance might differ from the 2023 LOM plan and actual results might significantly differ from guidance.

2023 LOM cash flows

An attached table presents a summary of 2023 LOM plan cash flows. In the 2023 LOM plan, silver accounts for 54 per cent of the total payable metal value, with zinc, lead, gold and copper representing 27 per cent, 16 per cent, 2 per cent and 1 per cent, respectively.

An attached table presents a sensitivity of 2023 LOM plan economic results to silver prices.

The total sustaining capital cost for the 2023 LOM plan at CLG is estimated at $160.2-million. Sustaining capital costs are summarized in an attached table.

Sustaining capital costs include underground access development to the lower levels in the central and northwest zones, and development of the southeast zone, including ventilation infrastructure, together with equipment replacements and miscellaneous infrastructure projects, including upgrades to the underground dewatering system as the mine is further developed, and two additional tailings dam raises anticipated to be completed in 2025 and 2028.

The average 2023 LOM plan site operating costs are estimated at $88.67 per tonne milled and are summarized in an attached table. Operating costs have been developed based on recent actual costs considering minor specific allowances for business improvement initiatives that are currently being implemented. Operating costs are based on long-term assumptions, including a Mexican peso exchange rate of 20 Mexican pesos per $1 (U.S.).

All-in sustaining costs are summarized in an attached table.

Opportunities -- growth, margin improvement and district-scale potential

The LGJV is analyzing multiple value enhancement projects beyond the 2023 LOM plan and 2023 mineral reserve. Capital efficient modifications to the existing plant are being evaluated. The LGJV has completed preliminary metallurgical testwork on separation of a copper concentrate and increasing silver and gold recovery through leaching a pyrite concentrate. These processing concepts, along with mill expansion projects, will be analyzed over the coming year in conjunction with targeted increases to mineral reserves and further mine life extension initiatives, with the potential to increase throughput rates up to 4,000 tpd.

There are currently five surface drill rigs active on conversion drilling focused on the 2023 southeast Deeps inferred resource. The LGJV is using the 1,100-metre elevation level to define the boundary of the southeast Deeps zone. The target of this drilling is to complete infill of the higher-grade portions of this zone to 50 m spacing for classification upgrade in a mid-2024 mineral resource and reserve update. As reported in the company's July 17, 2023, quarterly exploration update news release, drilling continues to intercept high-grade mineralization in this zone. Since the March, 2023, database cut-off used for the 2023 updates, an additional 27,769 metres of drilling has been completed (to the end of August, 2023), which will be used in the 2024 updates to mineral reserves and resources, together with further definition drilling planned (32,000 to 35,000 metres) over the next six months.

Near-mine exploration is under way, with testing of the Santa Ana zone approximately one kilometre north of the northwest zone. There remain a number of prospective targets close to CLG that, if successful, could be accessed from the existing underground infrastructure. The LGJV intends to test these targets during late 2023 and 2024.

District exploration continues to be focused on foundational data acquisition, primarily mapping, rock chip sampling, drone air photos and a magneto-telluric geophysical survey. The geology team has been expanded to accelerate detailed mapping of the district. A seventh drill rig is being mobilized in September, which will increase the number of drill rigs operating on district targets to two starting in Q4 2023 and ramping up further at the end of Q1 2024 after the current stage of definition drilling on the southeast Deeps zone is completed.

Esther resource unchanged since 2022

The Esther resource was not updated during 2023 and remains the same as reported in 2022.

Updated technical reports

The company expects to file an updated technical report summary (TRS), prepared in accordance with Subpart 1300 of Regulation S-K (S-K 1300) in the United States on the EDGAR section of the U.S. Securities and Exchange Commission (SEC) website, and file an updated technical report, prepared in accordance with National Instrument 43-101, Standards of Disclosure for Mineral Projects, in Canada under the company's profile on SEDAR+, to support the disclosure regarding the 2023 updates. The 2023 technical reports are expected to be filed within 45 days.

Webcast and conference call

Investors and analysts are invited to attend the webcast and conference call as follows.

Date:  Sept. 7, 2023

Time:  11 a.m. ET

A listen-only webcast will be available.

Dial-in number:  1-888-330-2398 or 1-240-789-2709 (Press the pound key to access an operator.)

An archive of the webcast will be available on the company's website within 24 hours.

About Gatos Silver Inc.

Gatos Silver is a silver-dominant exploration, development and production company that discovered a new silver-and-zinc-rich mineral district in southern Chihuahua state, Mexico. As a 70-per-cent owner of the LGJV, the company is primarily focused on operating the Cerro Los Gatos mine, and on growth and development of the Los Gatos district. The LGJV includes approximately 103,000 hectares of mineral rights, representing a highly prospective and underexplored district with numerous silver-zinc-lead epithermal mineralized zones identified as priority targets.

Qualified persons

Scientific and technical disclosure in this news release regarding the Cerro Los Gatos 2023 mineral resource was based upon information prepared by or under the supervision of Ronald Turner, MAusIMM(CP), an employee of Golder Associates S.A. Scientific and technical disclosure in this news release regarding the 2023 mineral reserve, the 2023 LOM plan and other economic analyses that will also be set out in the 2023 technical reports was based upon information prepared by, or under the supervision of, Stephan Blaho, PEng, an employee of WSP Canada Inc. Scientific and technical disclosure in this news release regarding the metallurgical assumptions for the 2023 LOM plan and other economic analyses that will also be set out in the 2023 technical reports was based upon information prepared by, or under the supervision of, Adam Johnston, FAusIMM (CP), chief metallurgist with Transmin Metallurgical Consultants (United Kingdom). Other scientific and technical disclosure in this news release was approved by Anthony (Tony) Scott, PGeo, senior vice-president of corporate development and technical services of Gatos Silver. Each of Mr. Turner, Mr. Blaho, Mr. Johnston and Mr. Scott is a qualified person, as defined in S-K 1300 and NI 43-101. Mr. Turner, Mr. Blaho and Mr. Johnston, FAusIMM (CP) are all independent of Gatos Silver and the LGJV. Each qualified person has verified the data disclosed herein in respect of the subject matter associated with the qualified person identified above, including sampling, analytical and test data underlying the related information or opinions.

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